Zimbabwe ZiG: Top reasons the gold-backed currency is thriving

The Zimbabwe ZiG currency has remained in a tight range in the past few months. The USD/ZWG exchange rate was trading at 26.57 on Monday, a level it has remained this year. This article explores some of the top reasons why the ZiG is doing well and what to expect. 

Zimbabwe ZiG is being boosted by soaring gold prices

One of the top catalysts for the Zimbabwe ZiG is the soaring gold prices. Gold price has soared to $3,700, up from the year-to-date low of $2,586, making it one of the top gainers in the financial market.

The surging gold price is important for the Zimbabwe currency because it is backed by gold and the US dollar.

Data shows that the amount of gold reserves stands at 3.5 tons, up from 1.6 tons in the same period last year. This means the reserves are currently worth about $404 million, up from about $150 million during the launch date.

Zimbabwe has benefited from the rising gold price and mining activity. Data released by the government shows that the country expects to mine about 50 tons of gold this year. It recorded a record monthly production of 4.27 tons in June, a trend that may continue.

The rising gold output is also notable as it accounts for about 33% of the foreign receipts.

Tobacco production rising 

The Zimbabwe ZiG is being supported by the tobacco industry, which has rebounded because the country has experienced better weather conditions this year. 

The recent data shows that the country has produced over 350 million kilograms of tobacco this year. This was a record number, crossing the 296 million it made in 2023. Tobacco has brought about $1.16 billion this year, contributing about 30% of the agricultural export earnings. 

The good weather conditions mean that Zimbabwe is spending less money on imports as it did last year when it faced a major drought. This trend has helped to stabilize the currency. 

At the same time, the country is seeing more remittances from foreign countries, especially the United States. Remittances jumped by 8.4% in the year’s first half to over $1.09 billion. 

These remittances now account for about 15.1% of the total foreign currency receipts, with the Treasury predicting an annual increase to $2.7 billion. 

Central Bank commitment to the ZiG

The ongoing economic recovery has led to confidence that the Zimbabwe government will have access to the international markets, where it has been locked out for over 20 years. The government has been holding talks with the World Bank and the IMF about this in the past few months.

This development, together with the central bank’s efforts to make ZiG the sole currency, has helped to boost its performance. In a recent statement, the deputy governor of the central bank said:

At the same time, the Zimbabwe ZiG has benefited from the ongoing US dollar index softness. The index plunged to $96, down from the year-to-date high of over $111.

The greenback continued its retreat after the Federal Reserve slashed interest rates by 0.25% in the last meeting. This cut has widened the spread with the Zimbabwean interest rates, which stands at 35%, creating a good carry trade opportunity.